The Gap Inc.’s GAP current valuation suggests that the stock is available at a discounted price compared with the industry average. The GAP stock trades at a forward 12-month price-to-earnings (P/E) ratio of 10.9X, significantly lower than the Zacks Retail – Apparel and Shoes industry average of 18.91X. Similarly, the forward 12-month price-to-sales (P/S) ratio of 0.58X is substantially lower than the industry average of 1.78X.
The stock also trades at a discount to its peers, including Abercrombie & Fitch ANF, Boot Barn BOOT and Deckers Outdoor DECK, which are trading at forward 12-month P/E multiples of 11.61X, 24.49X and 33.82X, respectively.
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Shares of Gap have risen 23.7% in the past year. While this performance shows the company’s steady growth, it has underperformed the broader industry, the Zacks Retail-Wholesale sector and the S&P 500 index, raising questions about its current valuation and prospects.
One-Year Price Performance
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At the current price of $23.46, the stock trades at a 23.3% discount to its 52-week high of $30.59. The stock also trades at a significant premium of 26.1% to its 52-week low of $18.61.
Although Gap is trading at a low valuation multiple compared with the industry, investors’ decisions on whether to lock in gains, hold, or remain bullish on GAP depend on several factors.
Factors Driving GAP Stock's Success
Gap's recent upswing is largely driven by its emphasis on cost management, improved inventory control and enhanced profitability. It aims to uphold financial discipline and strengthen its balance sheet by streamlining operations and reducing inefficiencies.
The company continues to benefit from strong brand performance and growing market share. Progress is evident in the revitalization of its brands, supported by management's focus on four strategic priorities — driving financial and operational discipline, reinvigorating brands, reinforcing the operating platform, and energizing company culture.
Gap is optimistic about its holiday collection and remains committed to enhancing customer experience both online and in-store. The company has updated product imagery on its website and remodeled 15% of its stores. In the third quarter of fiscal 2024, Gap achieved strong results at Old Navy, gained momentum at Gap, made progress at Banana Republic and returned to growth at Athleta.
The company is also advancing its cost-management initiatives, aiming to simplify and optimize its operating model. Efforts include increasing spans of control, reducing management layers and creating a consistent organizational structure across its four brands to improve decision-making quality and speed.
These actions are expected to deliver $300 million in annualized savings. Gap plans to further optimize marketing spend and streamline technology investments in the coming years.
Gap’s Optimistic Outlook
The GAP stock’s momentum is fueled by an upgraded fiscal 2024 outlook, reflecting optimism around its holiday collection. In the fourth quarter of fiscal 2024, the company is enhancing the shopping experience by refreshing its website and remodeling 15% of its stores. Strong third-quarter results and early fourth-quarter performance have bolstered confidence, prompting an improved forecast for sales, gross margin and operating income growth.
Gap projects fiscal 2024 sales growth of 1.5-2%, with fourth-quarter sales expected to rise 1-2%. The company anticipates a 220-basis-point improvement in the gross margin, driven by lower commodity costs and improved inventory management, while the fourth-quarter gross margin is projected to remain consistent with last year. Operating income is forecast to increase 60-65% year over year, marking significant progress toward stronger profitability.
Upward Estimate Trajectory for GAP
The Zacks Consensus Estimate for Gap’s fiscal 2024 and 2025 earnings per share rose 8% each in the last 90 days. The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.
For fiscal 2024, the Zacks Consensus Estimate for GPS’s sales and EPS implies 0.8% and 41.3% year-over-year growth, respectively. The consensus mark for fiscal 2025 sales and earnings indicates 2.1% and 6.6% year-over-year growth, respectively.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
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How to Play the GAP Stock?
Gap has cemented its position as a leader in the retail apparel industry through a combination of strong branding, digital innovation, sustainability initiatives and global expansion. With a focus on product innovation, operational efficiency and a customer-first strategy, the company is well-positioned to adapt to the evolving retail landscape and strengthen its competitive edge.
Boasting strong financial health and disciplined operations, Gap’s fundamentals remain solid. The recent rise in its share price, coupled with a valuation lower than many industry peers, creates an appealing opportunity for investors seeking a profitable apparel retailer. For existing shareholders, retaining the stock offers significant long-term potential as the company advances its growth initiatives. Gap currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
Deckers Outdoor Corporation (DECK) : Free Stock Analysis Report
Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report
The Gap, Inc. (GAP) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
